Today, the Supreme Court issued two decisions, described below, of interest to the business community.

  • Securities Act of 1933—Misstatements in SEC Registration Statements
  • Lanham Act—Preclusive Effect of Trademark Trial and Appeal Board Determinations

Securities Act of 1933—Misstatements in SEC Registration Statements

Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, No. 13-435

Section 11 of the Securities Act of 1933 grants a right of action to investors who allege that they have purchased securities in reliance on a registration statement that "contained an untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading." 15 U.S.C. § 77k(a). Today, the Supreme Court vacated a Sixth Circuit decision that had allowed expansive liability under Section 11 for statements of opinion. The Supreme Court held that an opinion may give rise to a Section 11 claim only if the speaker does not honestly believe the opinion or did not have the basis for the opinion implied by the opinion and its context.

The plaintiffs purchased Omnicare securities during a 2005 public offering. In connection with that offering, Omnicare had filed an SEC registration statement representing, among other things, that it believed that it was complying with all applicable laws. After the federal government sued Omnicare for alleged violations of anti-kickback laws, the plaintiffs sued Omnicare and its officers and directors, alleging that the stated belief regarding legal compliance was untrue because Omnicare was in fact engaged in unlawful activities. The district court dismissed the complaint on the ground that the plaintiffs had failed to allege that Omnicare knew that its legal-compliance opinion was untrue at the time that the registration statement was filed. The Sixth Circuit reversed, holding that it was sufficient under Section 11 for the plaintiffs to allege only that the stated belief was objectively false.

In an opinion by Justice Kagan, the Supreme Court vacated and remanded the decision of the Court of Appeals, holding that the Sixth Circuit had applied the wrong standard when evaluating the complaint. In doing so, the Court concluded that statements of opinion in a registration statement are actionable as "untrue statements of material fact" under Section 11 only if the speaker does not actually hold the belief expressed. The Court also concluded that a plaintiff may not bring a Section 11 claim that an opinion misleadingly omits material facts unless the plaintiff identifies "particular (and material) facts going to the basis for the issuer's opinion—facts about the inquiry the issuer did or did not conduct or the knowledge it did or did not have—whose omission makes the opinion statement at issue misleading." The Court therefore remanded the case for application of the proper legal standard.

Justice Scalia concurred, agreeing with the majority that opinions are not actionable as untrue material facts if they were honestly held, but reasoned that the majority took too expansive a view of the material-omission provision. And Justice Thomas concurred in the judgment that honestly held opinions cannot be the basis of an "untrue material facts" claim but argued that the Court should not have considered the material-omission theory of liability, which he thought that the complaint did not adequately raise.

The decision in Omnicare is of obvious importance to securities issuers and others (including underwriters and auditors) that may face Section 11 claims. The decision clarifies that statements of opinion may be a basis for Section 11 liability only in limited circumstances.

Lanham Act—Preclusive Effect of Trademark Trial and Appeal Board Determinations

B&B Hardware Inc. v. Hargis Industries, Inc., No. 13-352

Under the Lanham Act, the owner of an existing trademark may oppose the registration of a new mark before the Trademark Trial and Appeal Board ("TTAB") if the proposed new mark is likely to cause confusion with the existing mark. The Lanham Act also authorizes the owner of an existing mark to bring a civil action for trademark infringement in federal district court against any person who uses a mark that is likely to cause confusion with the owner's older mark. The Supreme Court granted certiorari in B&B Hardware Inc. v. Hargis Industries, Inc., No. 13-352, to resolve a disagreement among the federal courts of appeals as to whether the TTAB's determination on the likelihood-of-confusion issue in a registration proceeding is preclusive of that issue in subsequent trademark-infringement litigation. Today, the Court held that "[s]o long as the other ordinary elements of issue preclusion are met, when the usages adjudicated by the TTAB are materially the same as those before the district court, issue preclusion should apply."

Petitioner B&B Hardware registered the trademark SEALTIGHT for a fastener system. Some years later, Respondent Hargis Industries applied to register the mark SEALTITE for a different kind of fastener system. B&B initiated a proceeding in the TTAB opposing Hargis's proposed mark. The TTAB sustained B&B's opposition and refused to register Hargis's mark, finding that there was a likelihood of confusion between the two marks. B&B also brought a trademark-infringement action against Hargis. The district court rejected B&B's argument that it should give preclusive effect to the TTAB's earlier likelihood-of-confusion determination. A jury then found that Hargis's mark was not likely to cause confusion and returned a verdict against B&B. On appeal, the Eighth Circuit affirmed, holding that the TTAB's likelihood-of-confusion findings did not address the same issues as the district court.

In an opinion by Justice Alito, the Supreme Court reversed. The Court first recognized that issue preclusion may be triggered by an agency's—as opposed to a court's—resolution of a dispute. Next, reasoning that "[i]ssue preclusion is available" with respect to an administrative structure "unless it is 'evident' ... that Congress does not want it," the Court concluded that "nothing in the Lanham Act bars the application of issue preclusion" in this context. The Court also concluded that there was no "categorical reason why registration decisions" by the TTAB "can never meet the ordinary elements of issue preclusion," as the controlling standard is essentially the same, and the same party bears the burden of proof in both proceedings.

But the Court included a significant caveat: In a challenge to a registration, the critical question is whether a mark "resembles a [pre-existing registered] mark" to the extent that it is "likely ... to cause confusion," whereas infringement queries whether one "use[s] in commerce ... a registered mark" in a way that "is likely to cause confusion." Thus, a TTAB proceeding may focus solely on the content of pre-existing federal registration and "not on any common-law rights in usages" outside the earlier registration. In these circumstances, claim preclusion will apply if "a mark owner uses its mark in ways that are materially the same as the usages included in its registration application." By contrast, "if a mark owner uses its mark in ways that are materially unlike the usages in its application, then the TTAB is not deciding the same issue." "[T]rivial variations," the Court explained, are not "material."

Application of this rule, accordingly, will turn on whether the owner of the pre-existing mark uses its mark only in ways that are "materially the same" as its registration. The lower courts will likely be called upon to supply more detailed standards to adjudicate this question. While the Court hinted that the controlling test may be whether any variation is "trivial," its decision to leave for remand application of the "materially the same" standard to the facts of this case will provide litigants room for debate in future matters.

In concurrence, Justice Ginsburg focused on this last point. Emphasizing that "contested registrations are often decided upon 'a comparison of the marks in the abstract and apart from their marketplace usage,'" she joined the majority opinion on the understanding that "for a great many registration decisions issue preclusion obviously will not apply."

Justice Thomas dissented, joined by Justice Scalia. He rejected the majority's presumption that it is Congress's intent to give preclusive effect to administrative determinations and suggested that such a presumption should not apply "at least for statutes" that predate Astoria Fed. Sav. & Loan Assn. v. Solimino, 501 U.S. 104 (1991), which suggested the existence of the presumption. After concluding that the Lanham Act does not otherwise authorize preclusive effect for TTAB determinations, the dissenters expressed concern that giving a TTAB determination preclusive effect in an infringement action could "deprive a trademark holder of the opportunity to have a core private right adjudicated in an Article III court."

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.